Before electronic communication networks can challenge market makers for Wall Street's heavyweight championship, they'll have to endure several grueling elimination bouts.

Four ECNs started operating last year, bringing the number of combatants to 10. But two big ECNs,

Reuters Instinet

and

Island

, claimed 91% of trades executed on ECNs in the fourth quarter, according to estimates by

BancBoston Robertson Stephens

. The next-largest ECN mustered barely 3% of the market. Yet, despite the new guys' small splash, several more ECNs are looking to jump into the ring.

As a result, oddsmakers expect several ECNs to be knocked out by more powerful competitors. Traders, naturally, are likely to route orders where they can find volume. Without the benefit of Island's captive order stream from online broker

Datek

(owned by Island's parent) or Instinet's 30 years of relationship-building, the new ECNs may be in for a slugfest.

That's because order flow attracts more order flow, as Bill Burnham, an online broker analyst at

Credit Suisse First Boston

, postulated in a recent report.

"You're only as good as your volume, your orders," says Matthew Andresen, Island's president. On the playground, that might be called talking smack, but Island has some impressive numbers. (Volume reporting by ECNs is widely debated for accuracy, but no matter what numbers are used, Island and Instinet are the industry's titans.) Island's most powerful punch: Datek, the No. 4 online broker, routs its limit orders through Island.

Captive volume is the strategy that other upstart ECNs are pursuing. They're also trying to differentiate themselves with pricing and technological innovation, hoping it's still early enough to bulk up.

"This game is just starting," says Arthur Pacheco, president and chief executive of

Strike Technologies

. Strike, which received approval in November to operate an ECN, was the No. 8 ECN in the fourth quarter, according to Robertson Stephens.

Captive Audience

Strike is backed by a partnership of 19 firms, including

Bear Stearns

(BSC)

,

Lehman Brothers

(LEH)

,

J.P. Morgan

(JPM) - Get Report

and

Donaldson Lufkin & Jenrette

(DLJ)

. Those relationships provide a built-in critical mass of volume that other ECNs don't have, says Pacheco. Only five partners use the system, but he says volume will multiply as the rest of the owners come on the system by month's end.

Other ECNs have Wall Street's backing, too, which they hope will turn into order flow.

Goldman Sachs

and

E*Trade

(EGRP)

recently took stakes of slightly less than 25% each in

Archipelago

, the No. 6 ECN in the fourth quarter. Another ECN called

Brut

, ranked No. 5, has equity partners including

Merrill Lynch

(MER)

,

Morgan Stanley Dean Witter

(MWD)

, Goldman and market maker

Knight/Trimark

(NITE)

, all of which make up about a quarter of Brut's volume, according to President Brian Hyndman.

Brut, operated by

Brass Utility

, which is owned by

SunGard Data Systems

(SDS) - Get Report

, is also pursuing online brokers. Many brokers are considering a relationship with an ECN, through which they could route a portion of their limit orders. If brokers sign on, it would be another way for ECNs to capture volume.

Tech and Pricing Perks

Technological innovation at

Bloomberg's Tradebook

gives the network a competitive advantage over other ECNs, says Bruce Garland, a principal at Tradebook, the No. 3 ECN. For example, it introduced the reserve mechanism, where a trader can display only part of the order to prevent tipping his or her hand. It also introduced the ability to "sweep" the market, sending orders to one or more market makers or ECNs with the best prices. It aims to deliver other services that help traders execute large orders without affecting the stock price.

Strike touts its flexible technology and inexpensive rates, says Pacheco. Strike uses Java-based technology that can operate on any platform. (One of Strike's owners is

Sun Microsystems

(SUNW) - Get Report

, which developed Java.) Brut advertises the rebates it offers on orders sent its way, something Island also does, which are an incentive for brokers to send orders as rebates from market makers decline.

The Volume Magnet

Yet despite all these apparent perks, traders still focus on volume. "As a rule of thumb, the more volume an ECN generates, the more likely it is to deliver better execution," says Darrin Spencer, a trader and OTC execution supervisor at

Scottsdale Securities

, a discount broker that subscribes to three ECNs.

"It comes down to the number of people looking at

the ECN and the number of shares you can get done in a short period of time," says a trader at a New York discount brokerage, who prefers Instinet for its liquidity, although his firm subscribes to other ECNs.

However, one thing does buy the small ECNs some training time. Every ECN offers representation in the broader market because an ECN's best bid and offer prices are reflected in the

Nasdaq

quote. ECNs and market makers are linked through Nasdaq trading and quotation systems. And through some ECNs, such as Tradebook, a trader can anonymously access quotes at market makers and other ECNs. All that doesn't stop many firms from subscribing to a handful of ECNs, giving them direct access to separate pools of liquidity.

But the competition is fierce and changes are swift. Some ECNs are considering becoming or partnering with a self-regulatory exchange. Traders' willingness to hedge their bets won't keep puny ECNs in the ring for long.